Nasdaq takes another beating

JulieRannazzisi

NEW YORK (CBS.MW) -- Unloading of semiconductor stocks by skittish investors pushed the Nasdaq deep into negative territory for the third consecutive session Wednesday. The Nasdaq has lost a hefty 11.3 percent this week.

An analyst downgrade of Motorola and a bruising sell off in shares of Intel mauled chip stocks -- which were also the market's downside leaders on Tuesday. Further, concerns over high valuations in many big-cap tech stocks as well as nervousness ahead of next week's Federal Open Market Committee meeting kept investors on the fence.

Investors' nervousness reflects a number of factors, according to Clark Yingst, market analyst at Prudential Securities. The sheer decline in many tech stocks, concerns over the strength of the U.S. economy and the extent to which the Fed will have to raise rates to curb growth have weighed on market psychology, he said.

"Technology investors are definitely focusing on a half-empty glass. The market is concentrating more on the looming Fed meeting than good earnings news," said James Herrick, managing director of equity trading at Robert Baird & Co.

In the broader market, retail and airline shares rose while merger news buttressed issues. And safe haven sectors such as and gold also gained ground. Bank and shares fell as did oil service and drug stocks.

Volume was light, coming in at 977 million on the NYSE and at 1.57 billion on the Nasdaq Stock Market. Market breadth was extremely shabby with losers pouncing on winners by 21 to 9 on the NYSE and by 33 to 9 on the Nasdaq.

Sidelined buyers

"Buyers won't step in until the Fed meeting is out of the way. They're keeping their hands in their pockets and liquidity is strained to say the least," said Bill Schneider, head of block trading at UBS Warburg.

Yingst believes there may be a relief rally following the conclusion of the Fed meeting but expects the run-up to be short lived. A 50-basis-point rate hike is built into the market, he said, but rallies won't be sustainable until the market gets evidence of a slowdown in the economy. And that, he continued, isn't something that will happen overnight.

Despite the day's losses in top-tier tech stocks, Yingst believes the bellwethers -- which held up well during the recent Nasdaq downdraft compared to second- and third-tier names -- still have more work on the downside for the market to establish a bottom that will hold.

Sector watch

Motorola
MSI, -1.20%
shares plunged following a downgrade to an "outperform" from a "buy" by Salomon Smith Barney. The brokerage said its long-term outlook on Motorola remains positive but that added that assumptions underlying an optimistic outlook for the company's businesses may not be realistic. See Ratings Game column. Goldman Sachs said the reaction to the Salomon Smith Barney downgrade appeared overdone. Goldman said it's not changing estimates or ratings for Motorola and expects earnings per share growth of $3.25 for 2000 and $4.30 for 2001.

Motorola tumbled 18 1/4 to 86 1/4 and was the downside leader on the , which tumbled 8.6 percent. Other leaders on the downside included Applied Materials
AMAT, -3.01%
down 6 to 84 5/8, and Teradyne, off 11 1/4 to 82 1/2.

Applied Materials reported a profit from operations of 55 cents a share after the close Wednesday, matching the First Call estimate. The company made 40 cents a share in the same period last year. See full story.

Intel shares
INTC, -1.79%
plunged 10 7/8 to 106 1/16 after the chip bellwether reported a flaw in a tiny motherboard chip that could cause problems in hundreds of thousands of computers already in the market. At this juncture, Intel doesn't know how much the replacement program will cost. See Tech Report.

Cisco fell 4 1/4 to 58 1/2 and was one of the downside leaders on the , which fell 5.3 percent. After the close Tuesday, the networking behemoth
CSCO, -4.02%
checked in with third-quarter earnings of 14 cents a share, a penny ahead of the First Call estimate. The company earned 9 cents in the year-ago period. See full story.

IBM
IBM, -1.26%
fell 5 3/8 to 103 5/8. The bid came on the heels of an optimistic address from Chief Executive Lou Gerstner, who said Big Blue's Y2K-related sales problems have come to an end. Gerstner said the company's outlook should improve in the second half of the year. See full story. PaineWebber lowered its 2001 earnings-per-share estimate on IBM to $4.85 from $4.95 and cut its price target to $140 from $150. The brokerage reiterated its "buy" recommendation.

Shares of other PC makers fell and the lost 4.9 percent. Dell Computer
dell
shed 1 7/8 to 44 15/16 ahead of its first quarter earnings release, expected after the close Thursday. First Call projects earnings per share of 16 cents for the company.

Internet stocks lost significant ground, with the business-to-business segment also hard hit. The sector, however, managed to come off its session lows in afternoon trading. Merrill Lynch's B2B Holdrs
bhh
fell 5.0 percent, led by Scient, off 8 7/16 to 46 3/16, and SciQuest, down 1 5/8 to 11 5/8. (See chart.)

Specific movers

Microsoft
MSFT, -1.70%
shares fell 1 5/8 to 66 3/16. The software giant asked a federal judge to toss out the government's breakup proposal late Wednesday, arguing that the company's antitrust violations don't warrant such far-reaching sanctions. See full story.

In earnings news, Federated Department Stores
fd
checked in with first-quarter earnings of 41 cents a share, beating the First Call estimate of 37 cents a share. The company made 40 cents in the year-ago period. The stock rose 1/4 to 36 5/8.

Late Tuesday, Abercrombie and Fitch posted first-quarter earnings of 16 cents a share, in line with the First Call estimate. The company earned 14 cents in the year-ago period. But Abercrombie said it expects a profit of 16 to 18 cents a share for the second quarter, which compares to First Call's estimate of 21 cents a share. See full story.

The retailer
ANF, -0.84%
received a number of downgrades Wednesday. Merrill Lynch cut the company to a "near-term neutral" form a near-term buy," J.P. Morgan downgraded the stock to a "market perform" from a "buy" while First Union Securities and CS First Boston cut shares to a "hold" rating from a "buy." The stock fell 7/8 to 10. See Rating Revisions.

Champion International
CHA, -2.16%
put on 6 1/16 to 72 3/8. The company said it received a $7.3 billion -- or $75 per share -- acquisition offer from International Paper. The proposal was sweetened from IP's original offer of $64 per share made on Apr. 25. In addition, Finland's UPM-Kymmene boosted its previous stock swap bid for Champion to a $70 a share cash offer late Tuesday. See full story. Shares of IP fell 7/16 to 36 13/16.

General Motors fell 3 37/64 to 82 1/2. The company
GM, -2.10%
was downgraded by Merrill Lynch to a "near-term neutral" from a "near-tern accumulate."

Treasury focus

Bond prices gained ground as Treasury successfully concluded the second leg of its refunding auctions.

The government auctioned $8.0 billion in 10-year notes at a high yield of 6.475 percent and a high bid-to-cover ratio -- which measures demand -- of 2.62. Weakness in the stock market also lent support to fixed-income securities.

Thursday will see the release of April retail sales, expected to have risen by 0.4 percent, as well as April import and export price indexes. View and .

In currency markets, dollar/yen inched up 0.2 percent to 109.54 while euro/dollar lost 0.2 percent to 0.9065.

Given the euro's losing battle against depreciation, market observers are now banking on intervention or additional rate hikes by the European Central Bank to underpin the sagging currency. The ECB meets Thursday and some observers expects another rate hike. See related story.

In the commodity arena, June crude lost 55 cents to $28.10 while the Bridge CRB index tacked on 1.80 to 218.93. View latest commodity prices.

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